TIDMUTW
RNS Number : 5050J
Utilitywise plc
29 June 2017
29 June 2017
Utilitywise plc
("Utilitywise", the "Company" or the "Group")
Projected under-consumption of energy contracts
The Board of Utilitywise, a leading independent utility cost
management consultancy, announces that it has been made aware of
apparent material levels of under-consumption in certain contracts
placed with one of the major energy companies dealt with by the
Group (the "Energy Company").
Utilitywise remains in positive discussions with the Energy
Company and has agreed to make repayments of commissions,
previously paid to Utilitywise, totalling GBP7.6m between June 2017
and December 2020. As a result of changes in internal controls by
both the Group and the Energy Company since August 2016, which
mitigate the risk of significant under consumption in the contracts
versus the estimated usage agreed at the outset, The Board is
confident that contracts placed after August 2016 with the Energy
Company will show more normal levels of consumption over the lives
of those contracts.
The Board however feels it is prudent to reflect the full
potential impact of the payments in the financial statements of the
Group at this stage, though is confident Utilitywise will receive
some of the cash back from the Energy Company at the conclusion of
the contracts. The majority of the contracts in question are
ordinarily due to end in the calendar years 2020 and 2021, at which
point the final value of commissions due to Utilitywise will be
determined and the final cash position between the two parties then
settled. Accordingly, the Group will recognise an accounting charge
for the full potential impact, estimated at GBP11.2m, subject to
external audit, in its income statement in the year ended 31 July
2017. GBP7.7m of this charge is expected to be recognised as an
exceptional item, with the remaining GBP3.5m reducing the
underlying profit before tax of the Group in the same period.
The Board expects to fund this recovery from the Group's
operating cash flow and available banking facilities, including a
substantial offset of the negative cash flow in the year ended 31
July 2017. This will be through a combination of the corporation
tax impact of the above noted accounting charge and working capital
management. Accordingly, the Board does not change its expectations
in respect of net debt of the Group as at 31 July 2017.
The Board is satisfied that this issue is materially specific to
those contracts placed with the Energy Company and that the risk of
similar issues arising with other energy suppliers is low following
changes in internal controls at the Group. Accordingly, the Board
does not anticipate a risk to the future revenues, profits and cash
flows of the Group as a result of a recurrence of this issue in
other contracts.
Brendan Flattery, Chief Executive Officer, Utilitywise,
commented: "Along with the Board, the management and I are
confident that the risk of similar issues with other suppliers is
minimal. We have been working hard in terms of preparing
Utilitywise for its next phase of growth. Part of this process has
been increasing the transparency of the balance sheet, including
the decision to discontinue cash advances from suppliers as well as
improving our internal controls and methodology for estimating
future energy usage when determining contracts with our energy
suppliers. With an extensive portfolio of services in place and a
focus on providing a great customer experience, Utilitywise has a
strong platform for continued growth."
Under-consumption issue
The Energy Company has assessed the latest consumption levels on
its total portfolio of c. 4,400 live contracts placed by
Utilitywise. The Board understands that the consumption levels have
been determined by the Energy Company to be, on average,
significantly lower than initially expected at the inception of the
contracts. This determination is based in part upon actual
consumption levels partway through contracts but also on a
projection of actual consumption levels for the rest of the
contracts.
The Group receives 80% of its expected total commission on each
new business contract from the Energy Company upon the commencement
of supply of energy under the contract. The final level of
commission is typically assessed at the end of the contract, with a
balancing payment then made between the parties to align the
correct amount of commission ultimately due to the Group in respect
of each contract. On average, this is typically a further payment
to Utilitywise as overall consumption exceeds 80% of the initially
expected value. However, in the event of consumption of less than
80%, this would cause a partial reclaim of commission from the
Group in respect of commissions already paid at the start of the
contract, to reflect the lower level of energy usage and hence the
value of those contracts.
The expected level of consumption on a new energy contract is
ordinarily determined by reference to historic bills and other
documentary evidence from the previous energy supplier. Excluding
business written with the Energy Supplier, this has typically made
up more than 90% of contracts placed.
Where it is not possible to determine the expected level of
consumption using historic evidence, for example if the underlying
energy customer has taken a lease over a new property, the expected
level of energy consumption is instead estimated by reference to
facts that are available at that point in time. These include,
inter alia, building plans, comparison to and benchmarking against
other sites of similar size and/or activity. The proportion of
contracts using this estimated consumption (the "Nominated
Quantity") method has historically made up less than 10% of new
contracts overall, but was significantly higher than this level
with the Energy Company, compared to other energy suppliers. This
gave rise to an increased inherent risk of estimation
inaccuracy/error in the original contract values placed with the
Energy Company, compared to the other energy suppliers that the
Group deals with.
Improvements to Controls
Prior to August 2016, the responsibility for monitoring,
checking and approving Nominated Quantity levels sat within the
commercial function of the Group. In August 2016, the
responsibility was moved from the commercial function to the
finance function of the Group, and the process for approving
Nominated Quantity amounts was significantly strengthened, given
that Nominated Quantity amounts are not based upon historic actual
billings.
Other energy suppliers dealt with by the Group have much lower
levels of business placed with them using the Nominated Quantity
estimation method, with the vast majority of contracts being based
upon documentary evidence of historic consumption from previous
energy suppliers. The Board is confident that this primary
methodology for estimating future energy usage (that is to say,
where historic bills and other documentary evidence are used to
determine expected future consumption) is not as vulnerable to
similar issues as the Nominated Quantity methodology.
Changes in internal controls by both the Group and the Energy
Company, along with the substantial cessation of placement of
business to the Energy Supplier using the Nominated Quantity
estimation method, leads the Group to now believe that the risk of
recurrence of this issue on new contracts to be substantially
mitigated. Accordingly, the Board does not anticipate a material
risk to the future revenues, profits and cash flows of the Group as
a result of a recurrence of this issue.
Value of the Claim
The Energy Company has projected an aggregate over-payment of
commissions, previously paid to Utilitywise, of GBP7.6m and has
entered into discussions with the Group with the intention to
recover this total amount. In determining this value, the Energy
Company has taken the stated consumption level to date on each live
contract and extrapolated that consumption on a straight-line basis
across the remaining life of each contract, then aggregating the
individual amounts to form the basis of the Claim. Approximately
GBP5.7m of this amount relates to contracts that commenced prior to
September 2016, the majority of which relates to the period January
2015 to August 2016, with the balance of GBP1.9m made up of
contracts that were placed after that date.
The Group has received data from the Energy Company in support
of the claim and continues to work with the Energy Supplier to
fully understand the accuracy of the data and consumption levels,
although believes GBP7.6m to be the Group's maximum potential
aggregate repayment.
The majority of the contracts in question are ordinarily due to
end in the calendar years 2020 and 2021, at which point the final
value of commissions due to Utilitywise will be determined and the
final cash position between the two parties then settled. However,
it is now agreed that the value of commission repayments to the
Energy Supplier will be material ahead of the expiry of those
contracts.
Income statement impact
In light of the above, the Board has determined that it is
appropriate to make full provision in the financial statements of
the Group, in respect of this issue. However, the Board also
anticipates that contracts placed after August 2016 will show a
normalised level of consumption by the time they expire, with any
such associated financial upside then recognised should it occur in
future.
The current accounting policy of the Group is to recognise 85%
of the initially expected value of the contract upon those
contracts commencing. The profit impact of the GBP7.6m cash
repayment is an expense of GBP11.2m, of which GBP7.7m is expected
to be recognised as an exceptional item in the income statement of
the Group in the year ended 31 July 2017 with the remaining GBP3.5m
reducing the underlying profit before tax of the Group in the same
period.
Cash flow impact
As noted above, the Energy Company has requested that
Utilitywise repay commissions, previously paid to the Group in
respect of those contracts, of c. GBP7.6m. It is the current
expectation of the Group that this total repayment will be made in
several agreed stages, being GBP4.8m during the year ended 31 July
2017, GBP1.0m in each of December 2018 and December 2019 and
GBP0.9m in December 2020. This is ahead of the expiry of the
majority of the contracts concerned during 2020 and 2021, when the
final positions will be determined and residual cash flows will
occur between the two parties to ensure that Utilitywise ultimately
receives the correct amount of commission due from the Energy
Supplier.
The Board expects to fund this recovery from the Group's
operating cash flow and available banking facilities, including a
substantial offset of the negative cash flow in the year ended 31
July 2017 through a combination of the corporation tax impact of
the above noted accounting charge and working capital management.
Accordingly, the Board does not change its expectations in respect
of net debt of the Group as at 31 July 2017.
The information communicated within this announcement is deemed
to constitute inside information as stipulated under the Market
Abuse Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
For further information please contact:
Utilitywise plc 0330 303 0233
Brendan Flattery (CEO)
Richard Laker (CFO)
finnCap (NOMAD and broker) 020 7220 0500
Matt Goode/Henrik Persson (Corporate
Finance)
Simon Johnson (Corporate Broking)
Liberum (Joint broker) 020 3100 2000
Robert Morton/Steve Pearce
Redleaf Communications 020 7382 4730
Rebecca Sanders-Hewett/Robin Tozer/David
Ison
About Utilitywise
Utilitywise is a leading independent utility cost management
consultancy, which has established trading relationships with a
number of major UK and European energy suppliers and provides
services to its customers designed to assist them in achieving
better value out of their energy contracts, reduced energy
consumption and lower carbon footprint. Utilitywise is a UK company
quoted on the AIM market of the London Stock Exchange. For more
information, please visit www.utilitywise.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCOKFDKDBKBKAB
(END) Dow Jones Newswires
June 29, 2017 02:01 ET (06:01 GMT)
Utilitywise (LSE:UTW)
Historical Stock Chart
From Apr 2024 to May 2024
Utilitywise (LSE:UTW)
Historical Stock Chart
From May 2023 to May 2024